Yesterday the California Supreme Court adopted a new legal standard that will make it much more difficult for businesses to classify workers as independent contractors, drastically changing the legal landscape across the golden state. The misclassification of workers can result in significant legal exposure concerning wage and hour compliance and fines.

Although the court case was about the trucking industry, this case will impact office, engineering, and manufacturing workers. If your company uses contractors in California, you will need to carefully examine how this new standard may change your policies and practices with contractors and who you classify as employees.

Specifically, the court adopted a new standard for determining whether a company “employs” or is the “employer” for purposes of the California Wage Orders.

Under the new “ABC” test, a worker is considered an employee under the wage orders unless the hiring entity establishes all three of these prongs:

The worker is free from the control and direction of the company in connection with the performance of the work, both under the contract for the performance of such work and in fact.

The worker performs work that is outside the usual course of the hiring entity’s business. (One example of a worker performing work outside of a business’ normal work is a plumber doing repairs for a retail business).

The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.

This decision not only expands the definition of “employee” under the California Wage Orders, it also imposes an affirmative burden on companies to prove that independent contractors are properly classified.

Because of the decision, all California businesses with independent contractors will need to conduct a thorough evaluation of their contractors to determine whether they are properly classified.

In order to learn more about the California Supreme Court’s new legal standard, I have provided you the link to an excellent article by Ashton Riley of Fisher Phillips which was published today (May 2nd, 2018) on SHRM.

Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting and is a Managing Partner of InnovationOne. He consults and provides “hands-on” support for innovation, global talent strategies, developing agile leaders and teams, and other strategic initiatives. Contact Victor Assad at VA@VictorHRConsultant.com. Visit http://www.victorhrconsultant.com for valuable free reports. For research on innovation visit http://www.InnovationOne.io.